Raising Financially Responsible Children
Raising Financially Responsible Children
There is a popular saying that goes “like father (or mother) like son (or daughter)”. When it comes to personal finance, children reflect what they see. Personal finance is not really taught in school. There is a subconscious accumulation of student loan debt but how to handle that debt is rarely taken into consideration. Let’s not continue this cycle of oblivion.
Since children are the future, teaching children about handling money responsibly starts at home. Parents are responsible for teaching their children how to handle money so that they can become responsible adults. After all, wouldn’t you have wanted to be taught about money when you were a child yourself? Let’s not miss this opportunity and let’s not give our children a generational curse based off of bad money management and debt. If your child is old enough to work or to be given an allowance, they are old enough to learn how to be responsible with it.
Value of a Dollar
The first thing to learn about money is the value of a dollar. This changes depending on what country you live in and the currency. This includes how much time and effort it takes to make a dollar and what a dollar is comprised of. Each time you spend money, you are spending labor.
Let’s say your child received an allowance of $5 for an hour chore and they saved $5 a week for an entire month which equates to $20. Buying that piece of candy or a video game would deduct that from the hour of work. This puts things into perspective about the time equals money equation. Is that item worth it? What may be worth it to children may not be worth it to parents but this is a stepping stone to engaging your child in making decisions.
Allowance should still be monitored by parents but not in a condescending way. Rather than telling your child that they do not need to spend money on a certain item, monitor their spending and help them reason on their own why they should want to save it and also educate them on the value of money.
Purpose of Saving
What is the purpose of saving? This is dependent on each individual’s saving goal. As children, it is easy to want tangible things such as video games, toys, a new phone, candy, new shoes, etc. There is nothing wrong with wants and this needs to be normalized since we are human but all wants are not realistic to have. Our wants change as we get older but the wants still exist. This is why it is important to live with intention and live with contentment.
What value will a specific item add to your life? Do you genuinely like this item or will it be a status symbol? If you are confused about that question, would you still want this item even if no one could see it? Do you need this item now or can it wait? Many money mistakes stem from instant gratification, which should be avoided. This is the theory of money.
Opportunity to Earn and Save
A child can’t save any money without an opportunity to earn money. This could be received from an allowance doing household chores or having a part-time job if a child is legally able to work as a minor. This awards the opportunity to engage in hands-on experience about what’s included in making and managing money.
What Is a Budget?
A budget is an estimate of income and expenditure for a set period of time. This period of time can range from a week, every two weeks, every month, or every year. A budget consists of money that goes in and money that comes out. The purpose of a budget is to not spend more than you make so that your basic needs are met. Anything spent outside of your income is living above your means which would not be sticking to your budget. A simple budget can be created from an Excel spreadsheet template but an app that I recommend is Every Dollar.
Realistic Terms
To drive it all home, it is important to include children in family finances. Educate them about the cost of living, how changes in income can impact the family, and why the family is on a budget. A reason could be to move somewhere there is a better school district or even a better neighborhood, for instance. Literally, start with why. Elaborate on why a better educational system is better and why a safer neighborhood is better and how saving money can contribute to that. The saying that children should be seen and not heard needs to stop. This prevents children from having opinions which is a normal part of development. Children have opinions too and theirs should be taken into consideration if they are being impacted.
Bank Account
It’s funny that the purpose of a piggy bank is to save money but it costs money to buy it and some require you to break it before you can get the money out which is ultimately wasting money. However, if your child needs a visibly appealing way to save there is nothing wrong with a piggy bank to make saving fun. Another option would be to use a mason jar or an old spaghetti jar. This is more eco-friendly and reusable.
Parents can also set up a bank account for their child to help them save money and give them an idea of how adults handle money and use financial institutions. Although checks are becoming obsolete, there is no harm in teaching your child how to manage a checkbook.
Support System
The only way this is going to be successful is if children have a support system. Why should a child be financially responsible if the parents aren’t? Once parents are good with money, the apple will not fall far from the tree. You will then have a financially responsible adult in the making which our society needs more of. After all, being intentional with money builds more than just character.
Some good questions to ask children are:
How do you think receiving an allowance prepares you for the workforce?
Do you think money is a good reward system for your time?
What do you spend your allowance on (no judgement)?
Do you think it’s a good idea to put some money aside for a rainy day and if so, why?